Brattleboro Auto Sales Inc. v. Subaru of New England Inc.

Appeal from a judgment of the United States District Court for the District of Vermont, Albert W. Coffrin, District Judge, which denied the request of plaintiff-appellant Brattleboro Auto Sales, Inc. for an injunction to prevent the termination of its franchise relationship with defendant-appellee, Subaru of New England, Inc. Affirmed.

Before Waterman, Mansfield and Timbers, Circuit Judges.

Author: Waterman

Plaintiff-appellant Brattleboro Auto Sales, Inc. ("BAS") appeals from a judgment entered August 28, 1979 in the United States District Court for the District of Vermont (Coffrin, D. J.), denying BAS's motion for a permanent injunction and entering judgment for the defendant-appellee, Subaru of New England, Inc. ("SNE"). The principal effect of this judgment is to remove any legal barrier to SNE's planned termination of its franchise relationship with BAS.*fn1 For the reasons set forth below, we affirm the judgment of the District Court.

This lawsuit arises directly from certain business decisions made by BAS, and SNE's response to those decisions. For several years prior to 1978, BAS had operated a new car dealership and had acted as a sales representative for three automobile manufacturers: Saab, Subaru and International Harvester. BAS conducted this business out of its so-called "Old Facility" located in Brattleboro, Vermont. Sometime in 1977, however, economic considerations prompted BAS to begin preparations to move its business to larger, more modern quarters. The move to the so-called "New Facility," located diagonally across the street from the Old Facility, was accomplished in August 1978. To offset the increased overhead expenses involved in the operation of the New Facility, BAS decided to become a dealer representative for three additional lines of new cars: Buick, Pontiac and GMC light trucks.

Prior to the move, BAS consulted with and sought the approval of SNE officials. However, SNE took no action to indicate approval of, or even interest in, BAS's planned expansion. Instead, SNE officials informed BAS that if BAS went through with the planned move and took on the three additional lines of cars, SNE would terminate BAS as an authorized Subaru franchisee.

As indicated, BAS carried out its plans, and SNE followed through on its threat. SNE notified BAS by letter dated August 16, 1978 that it had decided to terminate "for due cause" the existing franchise contract with BAS, the termination to take effect sixty days from receipt of the letter.*fn2 In response, BAS filed this action in the court below, on August 29, 1978, seeking injunctive relief to prevent SNE's threatened termination of BAS as an authorized Subaru dealer.

At trial, BAS advanced three reasons for prohibiting SNE's attempt to terminate its franchise relationship with BAS. It alleged that SNE's action violated the federal antitrust laws, the Uniform Commercial Code (UCC) requirement that merchants deal with each other in good faith (Vt.Stat.Ann. tit. 9A, §§ 1-203, 2-103(1)(b)), and the Vermont automobile dealers' "Bill of Rights" (Vt.Stat.Ann. tit. 9, §§ 4071-4082 (Supp.1979)).

First, we fully agree with the amply detailed finding of the court below that BAS's antitrust claims are wholly without merit. To summarize the relevant points briefly, BAS's federal antitrust law claims involved allegations that SNE's refusal to continue the franchise relationship with BAS constituted both an unlawful refusal to deal in violation of the Sherman Act, 15 U.S.C. § 1, and was an example of an alleged SNE policy of exclusive dealing in contravention of the Clayton Act, 15 U.S.C. § 14. However, as the court below noted, at trial BAS failed to present any evidence that SNE's alleged objectionable conduct operated in restraint of trade, had the effect of substantially lessening competition, tended to create a monopoly, or constituted an attempt to monopolize. Of course, BAS's failure to establish that SNE's objectionable conduct was associated with either anticompetitive motives or anticompetitive effects is fatal to BAS's Sherman Act and Clayton Act claims.*fn3

Similarly, we agree with the district court's disposition of BAS's UCC "good faith" claims. Assuming that Article 2 of the Uniform Commercial Code applies to the franchise agreement between SNE and BAS, the "good faith" requirement imposes on the parties to the agreement an obligation to be honest in fact and to observe the reasonable commercial standards of fair dealing in the trade. Vt.Stat.Ann. tit. 9A, § 2-103(1)(b).

As indicated by the court below, BAS did not establish in the context of a distributor's decision not to continue in a franchise relationship with a dealership what the "reasonable commercial standards of fair dealing in the trade" were.*fn4 Furthermore, SNE's obligation to be "honest in fact" in its dealings with BAS may have required no more than that SNE give BAS adequate notice of SNE's anticipated response to BAS's planned action. However that may be, the standard of conduct required of SNE under the Vermont automobile dealers' "Bill of Rights" would equal (if not exceed) the obligations imposed on SNE pursuant to the "good faith" requirement of the Uniform Commercial Code.

Accordingly, we now address BAS's final claim, the claim that SNE's decision to terminate its franchise relationship with BAS was not supported by the Vermont statutory requirement of "due cause."*fn5 BAS argued (1) that its past performance as a Subaru dealer had been satisfactory; (2) that it had met all SNE's objective standards concerning facility and staff size for Subaru dealerships; and (3) that the "due cause" supporting SNE's action must be grounded in similar "hard" objective data. In response, SNE advanced three factors, each of which it maintained was sufficient to meet the "due cause" requirement for its action: (1) BAS breached the existing franchise contract by moving to the New Facility without SNE's prior approval;*fn6 (2) the New Facility and its personnel were inadequate to meet Subaru franchise requirements;*fn7 and (3) BAS could not provide the high quality sales and service SNE expected for the Subaru line if BAS simultaneously was operating five other franchises in the same location.

Finding no relevant legislative history or state court decisions on point to aid in the interpretation of the Vermont automobile dealers' "Bill of Rights," the district court turned to a Vermont Supreme Court decision, In re Grievance of Brooks, 135 Vt. 563, 568, 382 A.2d 204, 207 (1977), construing a related "just cause" provision in the context of a collective bargaining agreement, for guidance in determining the meaning of the "due cause" requirement, and to the federal Automobile Dealers' Day in Court Act, 15 U.S.C. § 1222, to determine the allocation of the burden of proof between the parties on the "due cause" issue. On this appeal, BAS maintains that this process resulted in a misinterpretation of the "due cause" requirement and in a misallocation of the burden of proof between the parties which require that the judgment below be reversed. We disagree.

As to the meaning of the "due cause" requirement, BAS seems to agree with the appropriateness of the Brooks standard; that there would be "due cause" for SNE's action if SNE had acted reasonably on the basis of some "substantial shortcoming detrimental" to its interests. However, BAS asserts that the district court should not have considered SNE's testimony relative to SNE's "subjective" or "prospective" beliefs as to BAS's future ability to remain an effective Subaru dealer in support of the existence of "due cause" for SNE's action.

Contrary to BAS's assertions, we find nothing in the relevant statutory language which forbids consideration of "subjective" evidence as part of the "due cause" inquiry. Moreover, in the automobile industry, as in other business endeavors, it is both a legitimate and a necessary course of conduct to take action relative to one's probable future business results as affected by present occurrences. In the present situation, SNE reasonably could have concluded that BAS's sales and service of Subaru cars would suffer as a result of BAS's simultaneous promotion of several lines of directly competing cars, and SNE ...

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